By Sarah Mills
LONDON (Reuters) - Britain's planned new customs system might not be ready in time for Brexit, according to a report by the government's spending watchdog.
HMRC, the government department responsible for tax collection, began setting up a new Customs Declaration Service (CDS) in 2013 to replace the existing system for collecting about 34 billion pounds ($44 billion) in annual duty on imports from countries outside the European Union.
That was before Britain voted last year to leave the EU. The National Audit Office (NAO) warned significant work was needed to complete the development of the CDS by the planned date of Jan. 2019.
"There is a risk that HMRC will not have the full functionality and scope of CDS in place by March 2019 when the UK plans to leave the EU," the NAO said in the report released on Thursday.
"In 2015 nearly 700 billion pounds of goods crossed the border. The continued smooth operation of these crossings is critical to the UK economy."
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Britain is set to leave the EU's customs union when it exits the bloc.
Its current customs system processed around 55 million pounds' worth of import and export customs declarations in 2015-16, and HMRC predicts that once Britain is out of the customs union that figure will rise to 255 million pounds.
"The programme is ... currently operating with some uncertainty due to the unknown outcome of the UK/EU negotiations, and no changes have yet been made to the scope of the CDS programme following the UK's decision to leave the EU," the NAO said.
It said any changes required because of Brexit would increase the risk of additional cost or delay. However, HMRC said the CDS was on track for delivery on time.
"We took the decision to bring in a new declaration system before the EU referendum, but the service remains fully capable of dealing with how the UK's exit from the EU will impact on customs declarations at the border," a spokesman said.
Opposition lawmakers and businesses voiced concern at the NAO's findings.
Mike Cherry, National Chairman of the Federation of Small Businesses, said the government needed a "Plan B" in case the CDS was not ready.
"It's extremely concerning that the UK’s new customs system may not be ready in time for Brexit, potentially resulting in massive delays to trade and leaving thousands of businesses in the lurch," he said.
(Editing by Andrew Roche)